Summer Prob Ex

# Summer Prob Ex - MIME 310 ENGINEERING ECONOMY PROBLEM...

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M I M E 3 1 0 E N G I N E E R I N G E C O N O M Y PROBLEM EXERCISES S U M M E R 2 0 0 9 Department of Mining and Materials Engineering McGill University

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ii F O R E W O R D There are ten sets of problem exercises, one for each chapter in the notes. Their purpose is to help you practice solving typical Engineering Economy problems. The solutions to these prob- lems are available on the course WebCT site. You will benefit from these exercises by attempt- ing them before you consult the solutions. Acquiring the solutions a few days before the class tests or final examination without having spent time on solving the problems is of no educational benefit. If you have questions concerning any particular problem, please consult the TAs or course instructor(s) during the appropriate hours. Prof. Bilodeau
iii C O N T E N T S CHAPTER #1 – INTRODUCTION 1 CHAPTER #2 – PRINCIPLES OF ACCOUNTING 3 CHAPTER #3 – THE TIME VALUE OF MONEY 5 CHAPTER #4 – PRODUCTION AND COST ANALYSES 8 CHAPTER #5 – SOURCES OF FUNDS AND THE COST OF CAPITAL 10 CHAPTER #6 – PROJECT EVALUATION CRITERIA 12 CHAPTER #7 – INCOME TAX CONSIDERATIONS 17 CHAPTER #8 – INFLATION 20 CHAPTER #9 – SENSITIVITY AND RISK ANALYSES 22 CHAPTER #10 – REPLACEMENT ANALYSIS 32

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1 CHAPTER #1 – INTRODUCTION 1. The demand schedule for a commodity traded on the market is as follows: Price (\$/kg) Quantity demanded (10 3 kg/yr) 20.0 34 000 19.5 35 000 19.0 36 040 18.5 37 120 18.0 38 240 17.5 39 400 17.0 40 600 16.5 41 840 16.0 43 120 15.5 44 440 15.0 45 800 14.5 47 200 14.0 48 640 i) Plot the demand curve; ii) Determine the arc elasticity of demand over each price interval of the schedule. How does the price elasticity of demand vary within the overall price range? 2. Plot the total consumer expenditure associated with the commodity described in problem 1 above as a function of price, as it rises from 14 to 20 \$/kg. At what price is total consumer ex- penditure maximized? What can be concluded by comparing this price to the arc elasticity measurements determined in problem 1? 3. The supply schedule for the commodity described in problem 1 is as follows: Price (\$/kg) Quantity supplied (10 3 kg/yr) 20.0 46 000 19.5 45 600 19.0 45 140 18.5 44 620 18.0 44 040 17.5 43 400 17.0 42 700 16.5 41 940 16.0 41 120 15.5 40 240 15.0 39 300
2 14.5 38 300 14.0 37 240 i) Plot the supply curve of the commodity along with its demand curve given in problem 1; ii) Determine the arc elasticity of supply over each price interval of the schedule. How does the price elasticity of supply vary within the overall price range? iii) Determine the equilibrium market price and quantity; iv) Determine the total consumer expenditure at the market equilibrium. 4.

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## This note was uploaded on 10/06/2009 for the course MIME 310 taught by Professor Bilido during the Summer '08 term at McGill.

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Summer Prob Ex - MIME 310 ENGINEERING ECONOMY PROBLEM...

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